London's top flight index regained its composure after a sharp rise in business optimism in the eurozone's powerhouse German economy.

The FTSE 100 index had slumped by more than 100 points or 1.5% as the minutes of last month's US Federal Reserve meeting showed a number of members were concerned about the cost and risks of carrying out further asset purchases.

But the slump proved short-lived in London, with the FTSE 100 retracing steps towards its recent five-year high, closing up 44.2 points at 6335.7 – above where it started the week.

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On Wall Street the Dow Jones Industrial Average also opened higher, but bullish sentiment was kept in check ahead of the Italian elections with the rise of Silvio Berlusconi fuelling fears the country could face future political deadlock.

Capital Spreads markets analyst Angus Campbell said he remained guarded about prospects for a further improvement in the equity markets. He said: "There are probably many bulls who have also been waiting for things to get a little cheaper before diving in."

In the currency markets the pound continued to be buoyed by public sector borrowing figures which showed a better-than-expected tax take in January.

Sterling was up against the euro at 1.16, helped by the European Union Commission's extremely downbeat growth forecasts for the European economy for 2013. It was flat against the US dollar at 1.53.

Among the many blue chip risers, ITV was again higher as takeover speculation and the prospect of next week's full-year results helped its shares improve 0.7p to 121.1p. Shares have risen to their highest level in nearly six years as other merger and acquisition activity – including the takeover of Virgin Media by Liberty Global – reinforced expectations that the broadcaster is ripe for a deal.

Another top flight stock at multi-year highs has been fund supermarket Hargreaves Lansdown, which climbed another 2% or 14p to 856.5p.

Sainsbury's was a notable riser after Citigroup introduced a buy rating on the stock because of the retailer's stable near-term outlook. Shares were 7.2p higher at 345p.

One of the few stocks on the fallers board, security group G4S dropped 2.7p to 287.1p – after HSBC downgraded its rating on the stock to underweight.

The broker noted pressure on pricing for manned security services in many developed markets and said there was a danger that this will make cost recovery difficult.